I have pasted a copy of an article from the Sunday Times about undeclaring property values and how the Spanish Inland Revenue is determined to stamp it out by computerising the records. I suppose that the computer system will take a while to be up and running but it will definately be operational by the time we come to sell. If we under-declare on the purchase price we may have a problem unless our future buyer plays ball also under-declares but they may be too scared because of the new computer system. If this happens and we have to declare the full selling price that we will face a big tax bill of 18% on the difference between the declared purchase price and the full selling price. We will be paying tax on profit that we didn't make.
The Sunday Times - November 4th 2007
New Spanish Threat on holiday home sales
BRITONS with holiday homes in Spain have been warned they may have to pay thousands of pounds more in tax after a clampdown on the practice of underdeclaring sale prices.
The Spanish tax office is using a new computer system to crack down on homeowners who evade tax by claiming to have sold their properties for much less than is the case. For decades, buyers, Spaniards and foreigners, have underdeclared sale prices by as much as 30%.
So if someone was selling a flat worth €100,000 (£69,500) they might officially sell it for €70,000. The other €30,000 would be handed over in cash, reducing the amount on which tax would have to be paid.
Bill Blevins of Blevins Franks International, an adviser, said: “It has always been illegal but many buyers were pressured into accepting it by sellers who wouldn’t have otherwise agreed to a purchase.” Provided the buyer also underdeclared when he or she eventually sold the property, nobody lost out.
The computer program will work by linking tax-authority computers to those at the public notary and property-registry offices in Spain. This will make it easier for the authorities to spot unrealistic sales prices.
The move means many homeowners will have to declare a larger capital gain when they sell, and be taxed on the higher amount.
Since the start of this year everyone is liable to pay 18% on capital gains on property in Spain. However, if you become a Spanish resident, the property has been your main home for three years, and you are over 65 when you sell, you avoid that tax in Spain. If you are under 65 and reinvest the profit in another home in Spain, you are also exempt.